Wednesday, August 27, 2008
Posted by D. Daniel Sokol
Eric Avenel of Laboratoire d'Économie Appliquée de Grenoble (Grenoble Applied Economics Laboratory (GAEL)) discusses Strategic Vertical Integration without Foreclosure in a recent article.
ABSTRACT: We determine the endogenous degree of vertical integration in a model of successive oligopoly that captures both efficiency gains and strategic effects. Foreclosure effects are purposely left aside. The profitability of integration originates in the greater ability of integrated firms to adopt a specific type of technologies. We show that vertical merger waves can stop by themselves before integration is complete because of strategic substitutability in vertical integration. This is in contrast to the strategic complementarity result in McLaren  that leads to either complete integration or complete separation.